What Is a Trading Arcade?
A trading arcade is a type of trading firm that offers and manages a shared workspace used by day traders. This shared workspace is a way for the firm to collect talent, resources, education, and capital to develop and support traders who want to work in leveraged trading.
A trading arcade firm bears some similarities to a proprietary trading firm; however, the business model of a trading arcade is different from that of a proprietary trading firm. Even so, technological shifts in trading make such distinctions rather fluid over time. Trading arcade firms typically specialize in forex or futures trading.
- Trading arcades are shared workspaces catering to the needs of day traders with the goal of collecting talent, resources, education, and capital.
- They became popular in the late 1990s, when digital trading was first introduced, but have become less popular today.
- Trading arcades provide day traders with a variety of resources, such as high-speed Internet connections, monitors and other hardware, conference rooms, and subscriptions to trading software.
- Users can rent access to trading arcades or can pay through a percentage of their trading profits.
How a Trading Arcade Works
Trading arcades became popular in the late 1990s and early 2000s as the digitization of financial markets led to the rise of day trading. As a growing number of traders started operating from home, the need arose for a shared workspace in which fellow traders could benefit from a sense of community, while also sharing common trading-related expenses. These facilities offer shared services such as high-speed Internet connections, monitors and other hardware, conference rooms, and subscriptions to trading software.
Some traders prefer using trading arcades as an alternative to working in isolation, due to the social environment they provide. Because trading arcades spread the cost of shared services across multiple members, they can also reduce traders' costs.
In this sense, trading arcades offer some of the dynamics that led to the rise of coworking spaces, such as those offered by WeWork. While this kind of office arrangement has become increasingly popular in recent years, the money involved in a trading arcade made it more economically viable years earlier.
Nowadays, trading arcades are more commonly situated outside of the U.S. and are more numerous in London than in other locations, though they can be found across the globe. Trading arcades tend to specialize in forex and futures markets, where non-U.S. locations have an advantage in greater leverage and lower regulation.
Trading Arcade Business Model
Trading arcades typically make money by renting access to the shared space and its resources. To gain access, a trader will often be expected to become a member of the firm. By contributing rent toward a common set of resources, trading arcade members are able to access the space, technology, and ancillary services that were once only available to professional trading firms, and contribute to the value of the space.
Depending on the business model of the trading arcade and the size of the firm, the firm might offer services that include training, coaching, trading software, consulting services, and even financial capital; however, the latter is more commonly made available in proprietary trading firms.
Cost of Trading
Since the advent of electronic trading about two decades ago, traders have been able to access a growing wealth of information on the securities they trade. However, this access can come at a substantial cost. For instance, the cost of a single Bloomberg terminal can be well over $20,000 per year, even before accounting for additional data services.
Since most novice and intermediate traders are unsuccessful, the most common forms of a business model for the trading arcade will include making money on the churn of the new traders coming in to learn, paying for a while, then quitting the occupation.
Different trading arcades will have different payment schemes. Some may exclusively charge monthly rents for the different tiers of service offerings, while others will secure payment in the form of a share of traders' profits.
However, those firms that are most successful are those whose models give them the incentive to train enough traders to be highly successful. The firm then provides ways for these highly successful traders to trade larger amounts of capital in exchange for a profit-sharing schedule.
Nowadays many proprietary traders work from home or remote offices, while others will work from the firm's office in an environment similar to a trading arcade. Among proprietary trading firms, it is typically that the best traders trade from the main office. Trading arcades typically attempt to maximize the use of the physical space and the benefits of having traders in proximity.
Traders in arcades used to be referred to as "e-locals" because they are communities of local traders who execute trades electronically, as opposed to transactions in physical trading areas, or "pits." But this phrase has become less meaningful over time as exchanges have offered more and more remote access to a wide variety of brokers and traders.
Although they have become less popular since their heyday in the late 1990s and early 2000s, trading arcades still exist in many financial centers around the world, with the heaviest concentration in London.